More Natural Gas Means More Dividends at Vanguard Natural Resources, LLC

Vanguard Natural Resources, LLC continues to focus on natural gas to fuel its growing dividend to investors.

Aug 4, 2014 at 4:00PM

Vanguard Natural Resources, LLC (NASDAQ:VNR) continues to buck the trend in the energy sector by focusing on natural gas to grow its dividend. The master limited partnership increased its already large bet on natural gas as it announced it was spending $278 million to buy natural gas focused properties in North Louisiana and East Texas. The deal adds 23,000 net acres and currently produces 17.5 MMcfe per day, with 67% of that production being dry natural gas, and the rest natural gas liquids and oil.

Turning on the gas
Vanguard Natural Resources has really focused on acquiring natural gas properties over the past four years. That's a different approach from most of its peers, which have really backed off natural gas as the price remains well off the highs it hit in 2008 as the following chart notes.

Henry Hub Natural Gas Spot Price Chart

Henry Hub Natural Gas Spot Price data by YCharts.

Plunging natural gas prices have caused many producers to simply give up on drilling for gas. These producers are also selling off mature natural gas properties in order to reinvest the cash into higher valued oil and natural gas liquids properties. Vanguard Natural Resources, on the other hand, has been a willing buyer of these properties because it's getting the natural gas reserves in the ground at fire sale prices. As the chart in the right-hand side of the following slide notes, Vanguard Natural Resources has been especially aggressive in acquiring natural gas properties in the years since the price of natural gas plunged.

Vanguard Natural Resources Llc Natural Gas Dividends

Source: Vanguard Natural Resources, LLC Investor Presentation (link opens a PDF).

Over this time, Vanguard Natural Resources has really transformed its portfolio into one that's focused on natural gas. In 2011, just 34% of its reserves were natural gas, however, just two years later, its reserves were 67% natural gas. The shift is due to its focus on value, as natural gas properties are being sold for a better value than oil properties. In addition to value, Vanguard Natural Resources is also picking up a long-term option on the price of natural gas as its profits will head higher if natural gas prices heat up. It's quite the opposite approach of peers like BreitBurn Energy Partners (NASDAQ:BBEP), which has really focused its efforts to boost its oil reserves. In fact, BreitBurn Energy Partners recently announced it was acquiring an oil-focused rival, which makes the combined entity the largest oil-weighted upstream MLP.

Why more natural gas will fuel more dividends
This focus on acquiring natural gas assets impacts the company's dividend, or distributions, in two ways. First, by acquiring less expensive natural gas assets, Vanguard Natural Resources can achieve greater initial accretion to its distributable cash flow for the same amount of capital. Greater cash flow accretion means the company has the ability to boost its dividend at a higher rate right from the start than if it would have acquired an oil-rich property.

In addition to that, because the company is acquiring long-lived natural gas properties, it holds a long-term option on the prices of natural gas. The company's latest deal included reserves that have an estimated reserve life of 23 years. That's a long time, and because time is on its side, it can wait for the fundamentals of the natural gas market to shift in its favor. In fact, as the following slide notes, there are several compelling reasons natural gas prices could heat up in the future.

Vanguard Natural Resources Llc Natural Gas Dividends Growth

Source: Vanguard Natural Resources, LLC Investor Presentation. 

As that slide noted, natural gas demand growth is expected to outstrip supply growth through 2018. Because of that, the odds are good that natural gas prices will creep higher over the long term. As natural gas prices heat up, Vanguard Natural Resources' cash flow from its natural gas properties should also increase, which should fuel higher dividends to investors.

Investor takeaway
Vanguard Natural Resources has focused much of its acquisition dollars on out of favor natural gas properties and instead letting peers like BreitBurn Energy Partners pay up to chase oil fueled growth. Because of this, its patience could really could pay off down the road, when natural gas prices increase, as that could add even more growth to the company's dividend. 

Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends BreitBurn Energy Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers